Netanyahu’s Support for the Gas Deal: A Leadership Crisis He Had to Win

The government ignored security arguments when negotiating with natural gas firms but dredged them up to bypass the antitrust chief. The following are three key issues.

Emil Salman

Hats off to the organizations that have fought the government’s decision to give Delek Group and its U.S. partner Noble Energy a dominant position in the country’s natural gas industry.

And hats off to Israelis who keep fighting. Although Prime Minister Benjamin Netanyahu signed the deal, the debate is still going on, from High Court petitions to arguments in the press and on social media.

After all, the questions about what Israelis will reap from this miracle under the sea are only growing. Here are three.

The issue of the implementation team

Immediately after approving the deal, Energy Minister Yuval Steinitz appointed a team to implement it. The team includes, besides people from the Energy Ministry, officials from the Finance Ministry and National Economic Council, agencies that shaped the deal and led negotiations with the gas companies. They called the deal “the best option.”

The implementation-team idea is a good one. The public sector is bureaucratic and does not excel at carrying out decisions, so a team to keep things moving is a good idea. But this team, like the process that led to the deal, isn't up to snuff and is hard to understand.

First, the person appointed to head the team is the Energy Ministry’s director general, Shaul Meridor, who has never handled the gas issue because of possible conflicts of interest. His brother, Mattan Meridor, is a partner in the law firm representing the Noble-Delek gas monopoly.

Meridor, who specializes in antitrust and competition law, attended some of the talks between the monopoly and the government team that forged the compromise deal. Is it logical that a person blocked from crafting the deal because of possible conflicts of interest should head the team implementing it?

That’s just one problem. Israelis have learned about an obscure clause in the antitrust law, Article 52, via which Netanyahu as economy minister bypassed the antitrust commissioner’s decision urging more scrutiny. Netanyahu used the argument that the gas deal has significant political and security ramifications, not just economic.

The show this month at the Knesset Economic Affairs Committee has revolved around this issue. At the climax of the show, the prime minister told the committee that the state had invested hundreds of millions of shekels to provide security for the offshore gas platforms because they’re in range of Hamas rockets from Gaza and the gas affects our ties with Egypt, Greece, Cyprus and Turkey.

The prime minister declared that decisions on the gas market should take into account security and foreign relations. He appropriated the antitrust commissioner’s authority and signed the deal. So why didn’t the implementation team include representatives of the Defense Ministry, the Foreign Ministry, the National Security Council and the military, which has to defend the gas platforms?

And why didn’t the team include members of the Antitrust Authority and the Electricity Authority, agencies responsible for the economy? Put a slightly different way, why does it appear the only interest directing the government is the gas monopoly’s economic interest?

Meanwhile, there’s a worrisome question the High Court might raise when it hears the petitions against the deal. If security and diplomatic considerations are so important, whey didn’t defense and foreign ministry officials work on the deal and help negotiate with the gas companies?

If there’s a fear that defense or diplomatic considerations were neglected, is the deal prudent? For example, the public never received a report on the costs of defending the platforms, or on whether the authorities discussed with the gas companies who would pay for the platforms’ defense.

The issue of global gas prices

The government uses security arguments when it’s convenient. It ignores them when negotiating with gas companies but dredges them up to bypass the Antitrust Authority. Similarly, the government uses global gas prices or ignores them based on its political needs.

Last summer, every time Steinitz sought to convince his interlocutors about the gas deal’s low price, he showed a table he said proved that Israel’s gas price would be low relative to most developed countries. But Steinitz used 2014 prices, while the market had plummeted since then. Only under the pressure of public protest did the gas deal lower the ceiling on new contracts.

But global gas prices have continued to collapse; it’s now questionable whether developing the gas fields yet to be developed will be profitable – basically all the fields besides Tamar, from which gas has been flowing for two years. On Thursday, for example, the Energy Ministry awarded concession documents for the Karish and Tanin reserves, but given current prices it’s highly doubtful whether it’s worth developing these two small fields.

This is important because the gas deal is based on the principle that the Karish-Tanin reserves, which Delek and Noble are required to sell within 14 months, are the ones creating competition and price reductions in the Israeli market. If it’s not profitable to develop them, no competition will ever develop.

According to experts, as long as gas prices don’t recover, the government will be forced to offer billions of shekels in subsidies to the Karish-Tanin shareholders to make it worth their while. Otherwise the fields won’t be developed.

This subsidy can take the form of a huge development grant, a high enough long-term guaranteed price, or a combination of the two. Are these low prices in global markets, which create the need for an enormous subsidy to the concession holders, not enough to reopen the debate on the gas deal, or at least hold a public discussion?

The issue of Netanyahu’s resolve

Of course, the prime minister didn’t show any interest in the gas market until a year ago, just as he didn’t show any interest in key economic issues in recent years. It’s no coincidence.

This decade, Netanyahu has portrayed himself as a responsible adult on security and foreign policy, and left the irksome socioeconomic issues to ministers and bureaucrats.

Netanyahu may have met Noble Energy’s chiefs when they visited Israel, sometimes with Delek’s controlling shareholder, Yitzhak Tshuva, but he didn’t help with the work and contacts in drafting the deal.

But a year ago, when the antitrust commissioner decided to do his job, Netanyahu turned into the deal’s main marketer; he even took the unusual step of taking over from his economy minister. So why did Netanyahu suddenly return to economic affairs, and why in the complex field of gas?

According to one theory, he was pressured by the United States, and we know of at least one letter from casino magnate Sheldon Adelson, the owner of the Israel Hayom newspaper who supports Netanyahu unconditionally. Government insiders and lobbyists for former U.S. President Bill Clinton also applied pressure.

Another theory suggests that Netanyahu feared that postponing development of the gas fields would lead to an investigative committee on “the great gas disaster,” as his enemies would label it, blaming him. There are two theories on this.

One is that Netanyahu could speed up the deal and development, even to the benefit of the gas companies. Second, he could blame delays on his political opponents – leftists, communists and protesters, whose real goal is to dethrone him.

It’s very likely that neither of these theories is right and that Netanyahu simply found himself in a leadership crisis he felt he had to win. Politicians on the sidelines say Netanyahu’s involvement shifted after Steinitz, who enjoys a rare open door to the prime minister, entered the Energy Ministry.

Steinitz recruited Netanyahu to help market the deal. The prime minister was armed with slogans. He declared that “when I want something, I usually get it.” And from there he had no choice but to continue until the deal was approved.

Which version is correct? We have no answer, but the question still keeps many people busy.